The Political Economy of Housing Financialization in Turkey: Links With and Contradictions to the Accumulation Model

ABSTRACT

Financialization influenced the Turkish economy and housing industry mostly through financial liberalization moves and soaring capital inflows. It both increased household liabilities and mortgage loans dramatically and offered various facilities for the housing industry. Relevant legal regulations not only helped the Turkish housing industry prosper but also eased its integration into the national and global financial system. In addition, political implications constituted a strong motivation for governments to attach special importance to the housing industry. I examine housing financialization as an integral part of the accumulation model of the Turkish economy and argue that the housing industry lies at the very heart of the contradictions of this model. The large-scale capital inflows both intensified the dependency on foreign resources and increased the role of the domestic demand. This is the main contradiction of the accumulation model; it manifests itself in the interest rate dilemma and is also critical for housing financialization in Turkey because the characteristics of this model are especially valid for the housing industry. Moreover, not only do the contradictions of the accumulation model disrupt the housing industry, but also the characteristics of the housing industry contribute to the disruption of this model.

KEYWORDS:

• financialization
• Turkish housing industry
• accumulation model of the Turkish economy
• government intervention
• interest rates
• capital flows

Acknowledgments

The author would like to thank Yasin Kara for his valuable support, and the editors and reviewers for their helpful feedback on this article.

Disclosure Statement

No potential conflict of interest was reported by the author.

Notes

1. For a useful classification of the financialization literature, see Van der Zwan (2014).

2. The main aspects are mortgage securitization (Aalbers, 2008; Fernandez & Aalbers, 2017a; Gotham, 2009; Wainwright, 2009; Walks & Clifford, 2015); the role of the state in restructuring housing finance and mortgage markets (Aalbers, Engelen, & Glasmacher, 2011; Hofman & Aalbers, 2019; Wainwright, 2009; Walks & Clifford, 2015); the role of housing as collateral for debt (Fernandez & Aalbers, 2016); social/subsidized housing and/or (privatized) rental housing (Aalbers, Van Loon, & Fernandez, 2017; Bernt, Colini, & Förste, 2017; Chua, 2015; Fields, 2015; Fields & Uffer, 2016; Forrest & Hirayama, 2015; Jones & Murie, 2006; Soederberg, 2018; Wijburg & Aalbers, 2017a; Wijburg, Aalbers, & Heeg, 2018); housing as a weak link of the financialized system, leading to fragilities in the financial system (Fernandez & Aalbers, 2017b); transnational wealth elites purchasing superprime residential real estate (Fernandez, Hofman, & Aalbers, 2016); a transition in the housing industry from pure speculation to long-term investment (Wijburg et al., 2018); the response of domestic financial actors to the internationalization of commercial real estate markets (Wijburg & Aalbers, 2017b); the role of (urban) redevelopment projects (Guironnet, Attuyer, & Halbert, 2016; Rutland, 2010; Savini & Aalbers, 2016; Theurillat & Crevoisier, 2013); land financialization (Kaika & Ruggiero, 2016; Savini & Aalbers, 2016); and pension funds (Theurillat, Corpataux, & Crevoisier, 2010).

3. See Aalbers (2019) for a selection of studies on housing financialization in the developing countries and for a discussion on the housing financialization processes in the Global North and Global South.

4. Although highly related to the production structure, the concept of accumulation model is more appropriate. See Chase-Dunn and Hall (1997, pp. 29–32) for the use of the term accumulation rather than production. However, in some parts of the article I also use production structure, to stress the role of the productive sectors.

5. This concept, first suggested by Powell (2013) and then developed by Lapavitsas (2013, pp. 200–255), implies that because of the existence of world money (the U.S. dollar), negative net capital flows appeared (from developing to developed countries). Although there are some relevant aspects of this approach for the Turkish case (such as the entry of foreign banks that accelerates the financialization process), the main categorization (the manufacturing exporters and commodity exporters giving current account surpluses) is not appropriate for Turkey. Bonizzi, Kaltenbrunner, and Powell (2019) then included the countries failing to produce current account surpluses in their analysis, but the first group of countries is still at the center of their argument. For a more detailed discussion on subordinate financialization, see Fernandez and Aalbers (2019), this issue.

6. The Turkish financial system has been bank based because of the peripheral position of Turkey in the world market, its relatively undeveloped stock market, and the fact that banks legally carry out not only depository functions but also investment banking activities (Marois, 2012, p. 109). As a result, banks in Turkey retain most of the financial assets.

7. For further analysis of the proliferation of the housing projects, see Aksoy (2012), Candan and Kolluoğlu (2008), and Türel and Koç (2015). See also Kurtuluş (2011) analyzing the housing projects as a representation of new upper and middle classes.

8. To name a few sources, Marois (2012) conceptualized Turkey’s (as well as Mexico’s) finance-led transition to neoliberalism with emerging finance capitalism, which refers to a new phase of accumulation and development as well as a new form of state–society relationship specific to peripheral capitalism. Karaçimen (2014b, 2016) explores how the financialization process in Turkey affected capital–labor relations and the everyday life of workers through the expansion of credit mechanisms to low-income earners. Bahçe and Köse (2016) reveal how financialization pushed laboring classes in Turkey into a borrowing circle, intensifying their disadvantageous standing, whereas Karaçimen (2014a) describes the recent rise in household indebtedness in Turkey with a growing dependence of poorer households on the credit system. Güngör (2018) analyzes the financial inclusion process in Turkey by emphasizing the state’s proactive role.

9. Erol (2018) outlines the changing nature of housing finance in Turkey as well as the changing role of the state in the production and financing of housing in the 2000s. Karaçimen and Çelik (2017) emphasize the role of new financial instruments in the development of the construction and real estate sectors and underscore the increasing interdependence between the real estate sector and financialization as a result of state intervention. Topal, Yalman, and Çelik (2018) criticize the transformation of the Turkish state’s role in urban redevelopment and housing finance. Çelik, Topal, and Yalman (2016) explore the relation between financialization and housing by applying a systems-of-provision approach and emphasizing the role of the state and integration with global capitalism. Aslan and Dinçer (2018) examine the role of mortgage loans in Turkey in the financialization process.

10. To name a few, following the enactment of Capital Markets Law in 1981, the Capital Markets Board was established in 1982. The Treasury started to issue government securities in 1985 (previously the Central Bank of the Republic of Turkey [CBRT] had assumed this task). Istanbul Stock Exchange was created in 1986. The CBRT initiated an interbank money market in 1986 and began to carry out open market operations in 1987. Creating mutual funds was allowed in 1987. Thereafter, other financial regulations exacerbated this financial deepening: the establishment of a bonds and bills market in June 1991, a repo–reverse repo market in February 1993, and a futures and options market in October 2001. Equally important, in July 1992, the Capital Markets Board allowed the banks to issue asset-backed securities against consumer loans.

11. Note that the ratio of capital outflows during the crises of 1994, 1998, and 2001 to the gross domestic product of previous years was, respectively, 11.9%, 4%, and 15.1% (Boratav, 2003, p. 180).

12. Whereas the average unemployment rate from 1988 to 2001 was 7.8%, it climbed to 10.1% from 2002 to 2017 (TURKSTAT, 2018).

13. For a detailed account of how several regulations and practices have suppressed Turkish labor in the meantime, see Bozkurt-Güngen (2018), BSB (Bağımsız Sosyal Bilimciler—Independent Social Scientists, 2015), Ercan, Gültekin-Karakaş, and Yıldırım (2018), Özdemir and Yücesan-Özdemir (2010), and Sarımehmet-Duman (2014).

14. See Bahçe and Köse (2016) for a detailed account of decreasing ratios of savings to household disposable income in Turkey, particularly in the 2000s. They also reveal how this ratio varies among different classes in Turkey and that lower income individuals have much lower savings rates.

15. The best tool to measure the real value of the TRY is the real effective exchange rate published by the CBRT from 2003 onward. If the index value is above 100, this means that the TRY is more valuable than “the basket of the countries’ currencies that have a significant share in Turkey’s foreign trade” (CBRT, 2018b), and vice versa if the index value is below 100. The index had nearly always been above 100 until 2013–2014, and it began to fall in the second half of 2013. From October 2016 onward, it has always been below 100, reaching a record low of 61.49 in September 2018.

16. See Aslan and Dinçer (2018) for a detailed analysis of the role of mortgage loans in Turkey’s financialization process.

17. The proof may be deduced from TURKSTAT (2018) data showing that 33.1% of the first sales are mortgaged house sales between 2013 and 2017. From 2018 on, this ratio began to decrease dramatically (it had dropped to 19.2% in 2018), the reasons for which I discuss in the fourth section. See also Çelik, Topal and Yalman (2016, p. 23) for a further discussion on this topic.

18. The Turkish Employers Association of Construction Industries argues that the construction sector creates a demand for more than 200 subsectors and produces around 30% of the GDP when these subsectors are considered (INTES, 2018, pp. 1–2).

19. The essential aim of the ruling party in Turkey (AKP—Justice and Development Party) in enacting this law was to win local elections of 2014 in such critical cities as Istanbul and Ankara. Given the distribution of the voters, AKP would not win in Ankara and would face a close race in Istanbul, but the amendment served its purpose and AKP won the elections in both big cities.

20. There is a vast literature on TOKİ and urban renewal projects. To name a few sources: Aslan and Güzey (2015), Demirli, Ultav, and Demirtaş-Milz (2015), Dündar (2001), Erman (2016a, 2016b), Karaman (2013), Kejanli (2013), Kuyucu and Ünsal (2010), Özdemir (2011), Türkün (2011).

21. This indebtedness is different from that of the middle-income and upper income buyers; the main creditor of the squatter dwellers is TOKİ (I discuss the related statistics below). See Erman (2016a, 2016b) and Kuyucu and Ünsal (2010) for further discussion.

22. Whereas 5.7% of employed people worked in the construction sector between 1988 and 2002, this ratio has steadily increased from 2003 onward, reaching 7.4% in 2017 (8.4% if workers in real estate activities are included; TURKSTAT, 2018). Moreover, when the sectors supplying inputs to the construction sector are considered, the real range of the employment facilities of the construction sector would expand.

23. For a detailed analysis of the construction sector in a political framework, revealing the political linkages of the giant construction firms and REITs, and emphasizing how unearned incomes on land and housing replaced the previous earnings on high-interest-rate public securities, see Sönmez (2015). See also Çavuşoğlu and Strutz (2014) and Yeşilbağ (2016) who investigate the issue in the framework of AKP’s hegemonic project.

24. The CBRT developed the hedonic house price index to measure quality-adjusted and pure price changes.

25. Some of the nonmortgaged sales are not real since they include deed transfers of the houses upon completion of the urban renewal projects. Although they represent the fulfillment of the agreement between the contractor and beneficiaries rather than real sales, they are counted among the nonmortgaged sales. Similarly, when the government reduced deed fees, some people made use of this opportunity to engage in intrafamily deed transfers.

26. Ergüven (2018) reveals how domestic demand is essential for even top exporters investing in Turkey.

27. The term generally used is closing the saving-investment gap, but since capital inflows themselves create this gap rather than closing it (namely, in the absence of capital inflows such a gap would not exist), I prefer creating the saving-investment gap.

28. See Ergüven (2018) for a detailed analysis of the strategies of the TNCs investing in Turkey, the role of the international production networks in the Turkish manufacturing industry, the capacity of the Turkish manufacturing industry to create value-added and high-technology products, and the priority of the domestic market for manufacturer-exporters.

29. Net capital inflows to Turkey have constituted a significant amount of total capital inflows to emerging market and developing economies. Even in 2015 and 2016 when there were net capital outflows from emerging and developing economies, Turkey attracted net capital inflows. From 2002 to 2014, on average, net capital inflows to Turkey amounted to around 15% of the net capital inflows to these countries (IMF, 2018; CBRT, 2018a). Of course, this high ratio does not represent gross capital inflows, which indicates that gross capital outflows from Turkey remained at unimportant levels. Besides, foreign direct investments occupy a much lower place in the capital flows to Turkey when compared with other developing countries, which increases Turkey’s fragility.

30. One of the drafts aims to deplete the increasing housing stocks of the ailing contractors. Accordingly, a public enterprise, Emlak Konut (the largest REIT), would buy the unsold houses of these contractors at a reduced price. Another regulation in December 2018 is intended to raise funds for the banks having high amounts of housing loan exposure by securitizing these loans. Actually, some regulations have been made for the issuance of mortgage-backed securities from 2007 onward, but this time a special purpose vehicle (SPV), called the Asset Finance Fund and established by a public bank (Development and Investment Bank of Turkey), would play an active role and be the guarantor in the whole process. This bank was restructured in October 2018 mainly to intervene in insolvencies. Thus, an asset-backed security was issued for the first time for mortgage loans; however, the volume was very limited and underlying assets were low-risk mortgage loans. According to another regulation dated December 5, 2018, 30% of the state subsidies on the private pension system would be invested in these securities. For an example from another developing country, see Soederberg (2015), who reveals how state-sponsored mortgage-backed securitization is of great benefit to financial and construction interests in Mexico in the guise of increasing homeowners among low-income people.

31. According to the Union of Chambers and Commodity Exchanges of Turkey statistics, the number of construction firms closing down is already increasing: whereas 2,731 construction firms closed in 2015, their number climbed to 2,964 in 2016, 2,908 in 2017, and 3,461 in 2018. In the first 6 months of 2019, 2,102 firms closed down, and this signals a greater increase in 2019.

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Emre Ergüven

Emre Ergüven, PhD, is an assistant professor in the Department of International Trade at Beykoz University in Istanbul. His research focuses on the Turkish economy, financialization, internationalization of production, central banking, and monetary policies.